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The Evolution of ChipIn

April, 2006

It’s only been a month or two since Hawaii Business last sat down with ChipIn founders Olin Lagon, Carnet Williams, Song Choi and Kevin Hughes, but it may as well have been a lifetime. Whereas a month ago they resembled an anxious baseball team preparing for the playoffs, all keyed up and barely able to contain their exuberance, they’re now a little more grounded, having settled into their respective positions on the field. You see, for ChipIn, which launched its public beta version in mid-March, the game has officially started and it’s time to start swinging for the fences.

INSIDE A STARTUP
Last month, we introduced you to ChipIn, Hawaii’s latest dot-com venture, created by four already accomplished entrepreneurs. In this issue, we continue our behind-the-scenes coverage of this promising startup as it confronts technical difficulties, hunts for office space and ventures into new territory. This is the second installment in the series, Anatomy of a Startup.

Their strategy and focus hasn’t changed Ð ChipIn is still going to be a Web-based system that collaborates group transactions and payments Ð but as the company quickly moves from having great ideas to executing them, its issues and challenges grow more and more complex. They’re no longer writing a business plan, they’re implementing it. They’re not theorizing about how their system could change the face of ecommerce, they’re knee-deep in computer codes, crossing their fingers the system works as well as they’d hoped. And, along the way, they’re discovering that not everything goes according to plan.

Rolling With The Punches

Nestled in Manoa Valley, the Manoa Innovation Center (MIC) is what Chief Operating Officer Olin Lagon calls the ideal office location for ChipIn. Everything from its state-of-the-art facilities (which include Internet access, conference rooms, voicemail and messaging) to convenient parking and a wealth of neighboring food spots make it the perfect turnkey solution for the fledgling startup. And by all definitions, ChipIn is a prime candidate for tenancy at MIC, whose primary role, according to its Web site, is “to serve as an incubator for new and early-stage technology companies.”

At least, that’s what the ChipIn guys thought. Although they’ve been working virtually out of MIC since last summer, using their conference rooms for meetings and such, ChipIn is still on the waiting list for actual office space. “I’ve told [outgoing executive director] Phil Bossert a couple times that we’re the perfect startup for MIC,” says CEO Carnet Williams. “If anything, we’ve pushed as hard as we can, but the fact is the space isn’t available. And from a layperson’s perspective, I’ve complained about the fact that there’s some pretty big companies and some companies that are sort of hanging out there.”

“You know, we wanted the space, it’s not available, so we improvised. We set up an office downstairs in my house and that was it,” says Williams. “The key thing there is that we’re a startup. There’s going to be little bumps every day, and we need to just go over each and every one of them. And that’s a good lesson for other startups, is you’ve got be agile and flexible and think on your feet.”Companies like the publicly traded software firm Electronic Arts, which moved in after buying former MIC tenant Blue Lava Wireless. With a market cap of nearly $16 billion, EA isn’t exactly an “early-stage” technology company. But ChipIn isn’t making a big deal of it, in part because, when EA does move out (at the time of this writing, they were scheduled to begin by April), it’s unlikely ChipIn will score any of that space, but, more importantly, the principals have bigger fish to fry.

Moving Aside to Move Ahead

Ask any one of the ChipIn founders, and he’ll tell you, one of the biggest keys to building a successful business is flexibility. You’ve got to be ready and willing to switch gears, sometimes at a minute’s notice Ð and sometimes at the expense of a team member’s ego.

Around mid-February, ChipIn had to make one of those difficult decisions. For half a year, co-founder Song Choi was the company’s chief marketing officer, responsible for the majority of the company’s sales and marketing efforts. Having garnered numerous industry awards for his marketing talent and achievements, Choi seemed perfectly suited for the job. As the business evolved, however, it became apparent that, despite his local credentials, Choi lacked the sales experience and contacts necessary to market ChipIn nationally.

Earlier this year, a few ChipIn investors/advisors, including HiBeam board member Kenton Eldridge, broached the idea of hiring a new CMO, one with considerable experience and a fat rolodex. “I felt that they really needed a top notch marketing person of national stature, because this is going to have to be marketed nationwide. It’s something that’s very important to the development of this business,” says Eldridge. “Ultimately, the decision was theirs, but as a mentor to ChipIn, it’s my responsibility to help them avoid some of the early pitfalls that I’ve seen some younger companies experience.”

Still, while Lagon did relinquish his CEO title, he remained responsible for some pretty core functions. With Choi, it wasn’t so cut-and-dried. At the time of this writing, the team still hadn’t determined which functions Choi would retain (other than facilitating the beta launch and organizing early sales opportunities), how much equity he’d retain, or what his new titles and tasks would be. What was clear though, by the manner in which the guys danced lightly around the subject, is that it was among the first truly sticky or touchy issues the team has encountered Ð and they were going to handle it with grace.Lagon, who went through a title change himself early on, says Choi’s change is a good example of how startups have to roll with the punches: “With any startup, you always gotta start somewhere. So you put a peg in, and say ‘Yeah, I’ll do this,’ and as the demands of the company grows and as the demands of your own life change, you’ve gotta constantly shift,” says Lagon. “And that goes for all of us. At one point, I was CEO, but it made more sense for Carnet to have that title, so I took more of an operational role. We all have to be able to be fluid.”

“None of us are egoists. I’m not. It comes down to a skill-set issue. When it comes to operating in that space, my experience, compared to what the other guys have done nationally, it just doesn’t match up. It got to a place where I could see it, but it’s difficult for me to act on a lot of it,” says Choi. “When you hit that kind of gap, you gotta find an answer. And we’re just too tight on time. The sales and marketing is critical to our success, so we have to do what it takes to guarantee that kind of hit that we need to have.”

In case you didn’t know, the chief architect of the ChipIn system, Kevin Hughes, is a deity among techies and Web connoisseurs. A pioneer in Web design and interface, Hughes built the Internet’s first shopping site, the first set of online cable TV listings and Hawaii’s first Web server (for his alma mater, Honolulu Community College). But Hughes isn’t just a creator of cutting-edge technologies, he’s also an avid tech fan and consumer, relishing all the latest gadgets and programs designed to simplify his life and whatever else he may be working on Ð and ChipIn is no exception.

Meanwhile, Back In Carnet’s Basement …

Hughes says that since he and Jerome Gagner, a 19-year-old-Seattle based programmer and ChipIn’s first hire, began work on the system last November, he’s been amazed by all the benefits afforded by technological advances. “Much of what we’re using is open source (typically cheap or free software that allows users to view the source code, alter and redistribute it) Ð our operating system, the database, our forums, our mailing list and blogs,” says Hughes, with widened eyes. “I had some experience with most of these things, but a few things were completely new, and it’s really made what we do a lot easier.”

The most obvious benefit has been in cost savings Ð Williams estimates that, five years ago, the company would’ve spent 10 to 15 times more on software, licensing, hardware and overall product development. But time savings has also been a significant advantage. Things such as Wiki’s, VoIP and online project-management systems have allowed the team to work as efficiently and remotely as possible. “We absolutely couldn’t have done what we’ve done in this time, without making use of these systems,” says Hughes. “Even something like instant messaging has been extremely valuable to us. We use it when we’re in the same room to trade codes.”

But working with the latest and greatest technologies does have its drawbacks. Because open-source technologies allow users to make changes to its source codes, the systems constantly evolve until a stable version is released. It’s not unusual for programmers working with open-source applications to have to start anew after someone suddenly alters the source code … which is nearly what happened to Hughes and Gagner while working with an application called Symfony.

“One of the biggest technological decisions we had to make Ð choosing our application development framework Ð was initially a huge gamble,” admits Hughes. “The version we were working with was still under development and people were making changes to it every day. There was actually a day where we said, if we couldn’t make it work in 24 hours, we’d just scrap it altogether.”

Had that been the case, Hughes and Gagner Ð who have been working under the tightest of deadlines Ð would probably have fallen behind, triggering a series of setbacks. Fortunately, that wasn’t the case Ð the guys were able to make it work Ð and, as of early March, ChipIn was right on track for the mid-month launch of its public beta version.

They Become The Verb

As much of a chore as adapting to new technologies was, it’s at least something with which the ChipIn team was tremendously familiar. Coordinating banking and financial transactions, however, was uncharted territory for Willians and Lagon, who worked together to court banks and credit-card partners to handle ChipIn’s financial transactions. “Because our system is going to be used as a platform to hold and transfer money, we’re basically in regulated territory and, without question, there’ll be some people wanting to use our system for illegal activities, like pooling money for terrorist acts and gambling,” says Lagon. “I’ve already been approached by [an overseas] gambling firm that thought it would be a really nice fit for what they do.”

Lagon says the best way to handle these types of situations is to partner with financial institutions that already have those controls in place. They’ve already met with several banks, but haven’t yet inked any deals. And while ChipIn would love to partner with locally based banks, Williams says it’s unlikely that’ll happen: “We’re actually looking at some banks in South Dakota, and it has to do with two main factors Ðcompliance and risk. Banks are highly driven by state regulations and, in that regard, South Dakota has made a name for itself as the ecommerce banking capital of America. I think it has to do with state laws, but, more importantly, they’re willing to take the risk.

“Right now, we’re a small fish. So we get more high touch with smaller banks, because they’re investing into the idea as much as we are. They know that if Ð well, when Ð this company makes it, that they’re gonna be the beneficiary of that tremendous volume.” ChipIn’s hoping the “you grow as we grow” theory also applies to its first retail partnership with online gift certificate company GiveAnything.com.

Initially, New York-based GiveAnything offered ChipIn a small commission on traffic it directed to the site, but after Williams walked it through the business model, GiveAnything doubled the commission percentage and asked to become the first ChipIn-enabled site, meaning GiveAnything would be the first to offer “chipping in” as a payment method directly from its site.

“They were so excited about what we were doing, because it fit in with the direction of where they were going, and that’s the kind of intimate relationships we want to build with all of our partners,” explains Williams. “If we’re going to partner with you, you’ve got to help us, but we want to help you, too. Those are the types of partnerships that hold much greater value in the long run and increase our company’s valuations. And those are the kinds of partnerships you’ll see companies like Yahoo! being a little more hesitant to make.”

He mentions Yahoo! because, with an ecommerce framework, a social networking component and an online storefront already in place, it’s probably one of ChipIn’s biggest threats, in terms of competition. Not that they’re all that worried about it. Hughes says: “Yahoo! isn’t the only one with this idea; neither are we. Maybe in the business world it’s not a sure thing unless you have zero competitors, but in the Web world, it’s a given that the same idea’s going to be replicated in many different ways all over the Net.”

ChipIn’s principals don’t just acknowledge competition, they welcome it. “We like competition, it validates our market,” says Williams. “Yeah, I’m sure that once we launch, our competitors will all sign up for the beta and get a good look under the hood, and if they like what they see, they’re going to try and develop the same thing. But we’re really not worried about that.”

That’s because ChipIn isn’t planning on getting lost in the back of the pack. It intends to be the first out of the gates, becoming the industry standard. The Band-Aid of bandages. The Kleenex of tissues. The eBay of online auctioning. “The key is that we’re defining a category,” says Choi. “We’re the first to market, we’ve got all the right pieces in place, and we define the category. We become the verb.”

It’s hard to argue with that strategy, seeing as how at any given moment, someone, somewhere is Xeroxing a document, Tivoing their favorite shows, Googling something and, well, Chipping In.